Professor analyzes euro’s effects on European Union
University of Washington political science Professor James Caporaso gave his prediction of the euro zone’s stability to an audience of mostly political science students yesterday during his visit to the campus.
Speaking to about a dozen students and faculty at the Center for European Studies on Douglass campus, Caporaso said his prediction surprised him as well.
“Two months ago, I would never have said that the euro could collapse, but now there is definitely a chance,” he said.
After the rising national debts of Greece and Italy, the crisis in the euro zone — 17 of the 27 European Union countries that use the euro as its currency — has pushed some economists to agree the status quo is not sustainable.
Caporaso, who specializes in international political economy and comparative political economy, said the outcomes are uncertain. The EU would decentralize or become more unified as a fiscal federation, which would enact unified legislation across Europe, he said.
“Europe can’t stay where it is now. We are at an unstable equilibrium,” he said. “You can either move forward and be further integrated or go back and dissolve the euro.”
The timeline to fix the problem and reassure markets have also shortened, said Caporaso, who is also editor of the journal, Comparative Political Studies.
“The Europeans thought they had 30 to 40 weeks, but now they actually have 30 to 40 days,” he said.
Caporaso said if the euro dissolved, it would be difficult for European financial system to function.
“The day-to-day problems that many Europeans will experience are incomprehensible,” he said. “People will be wondering the conversion of Greek drachmas and euros, and what their money will be worth.”
Professor R. Daniel Kelemen, director of the Center of European Studies and host of the event, said if the euro were to collapse, U.S. institutions would face problems similar to theirs. Many U.S. banks have taken out insurances on the euro, and the adverse effects would be similar to the 2008 American International Group collapse.
Caporaso said the other solution could be that the financial crisis will push Europe toward greater centralization, which will give greater powers to the EU and the European Central Bank.
Caporaso said the option of further integration contains problems in itself. The consolidation of debt from the euro zone countries would cause the German banks borrowing interest rates to increase, which is one of the reasons Germany opposes full integration.
EU countries not in the euro zone have also pushed back from switching to the euro, whereas previously they were willing to join, he said.
Turkey, which has been trying to join the EU and the euro zone for many years, aims to be inducted, but Caporaso said conservative governments in the EU would continue to be against the inclusion of Turkey.
“The addition of Turkey would allow the young workers to offset the both those problems. It will give Europe a bridge into Asia and the Muslim world,” Caporaso said.
Kelemen said the euro zone would not dissolve despite the current economic situation.
“Nietzsche said, ‘Whatever doesn’t kill you makes you stronger.’ I think it won’t fall apart. Europe will become stronger,” he said.
Caporaso said Europe is actually divided into four parts: the economic, social, fiscal and democratic Europe. The economic policies of Europe are on their way to full integration, but social, fiscal and democratic policies are behind in integration.
He said the lack of political power of the EU and the lack of ability for the organization to create fiscal policies regarding debt are the main culprits of the crisis.
“The problem is not the amount of debt. The problem is structural,” Caporaso said. “It is institutional. If these institutions were in place, you wouldn’t have a run on the bank.”
Amanda Alcantara, a School of Arts and Sciences senior, said she agreed with Kelemen’s predictions instead of Caporaso’s dire outlook.
“I don’t think France and Germany will allow Italy and Greece to bring them down while still being part of the euro,” she said.
Alcantara said Caporaso was drastic in saying the EU could fall apart.
Her experiences in focusing European studies at the University and her time spent studying abroad in Paris do not reflect this prediction, she said.